April 13, 2012

Microsoft announced this week that it's paying America Online $1.1 billion in cash for 800 of its patents. This comes just nine months after Apple, Microsoft and others beat out Google and Intel for control of Nortel Networks' 6,000 patents, paying a then astounding $4.5 billion in cash. And in August of last year, Google announced a deal for Motorola Mobility along with their 24,000 patents for $12.5 billion. What's going on here?

It goes back to March 2006, when BlackBerry phone maker RIM agreed to pay a whopping $612.5 million to settle a mobile email patent infringement case with patent-holding company NTP. This comes to $6 for each BlackBerry ever sold. So-called patent trolls, those that own patents but don't sell products or services, are a pain in the side of those that do.

Microsoft founder Paul Allen spent $100 million in the 1990s on Interval Research, without much to show for it. But in August 2010 he turned it into a patent troll, suing Apple, Google, Facebook and others (but not Microsoft) for infringing four patents. Nathan Myhrvold's Intellectual Ventures has a large portfolio of patents and a series of clients like Verizon and Cisco who invest or pay a subscription not to get sued. We all pay for this with higher prices.